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THE MORNING BUZZ: Rental is Dead. Long Live Rental!

24 Oct, 2002 By: Thomas K. Arnold

I'm going to make a bold prediction here: the rental industry as we know it is on its last legs.

Sorry, independents, but Blockbuster is as much a bellwether as it is your Public Enemy No. 1. And Blockbuster is doing two things that I believe are a harbinger of things to come: focusing more and more on sellthrough (something I've written about in past columns) and instituting a monthly “subscription” rental model that I firmly believe will become the future model for the entire rental industry —to the detriment of independents.

Blockbuster has already raised the ire of indies with its extended rental periods — three days, five days, it doesn't matter. What Blockbuster was striving to do (in addition to putting as many of its competitors out of business as it could, thus gobbling up market share) was to minimize the inconvenience to its customers of having to come back to the video store the very next day or incur steep late fees.

This is the next logical progression — keep your videos an entire week, an entire month, as long as you want — rent as often, as much, as you wish — with the simple rule that you never have more than three videos out at any one time. All this for just 20 bucks a month.

I believe Blockbuster's Freedom Pass is not just another option. I believe that eventually this will be the only way consumers can rent videos at Blockbuster.

Of course, Blockbuster is going to have to buy even deeper than before to not run out of the hits, but no matter — DVDs, which are rapidly becoming the preferred medium of choice, wholesale for a lot less than videocassettes, even under the most optimal copy-depth program. And does anyone really believe we're not going to see Blockbuster and the other big chains start to revenue-share on DVD, just as they did with VHS? It worked once — Blockbuster's market share climbed significantly — and if the studios play along I see no reason why it's not going to work again.

On top of that, any money the chain might lose in late fees it will more than make up for in used DVD sales — certainly a growth category as the video industry shifts from a rental to a retail economy.

Ultimately, of course, I believe Blockbuster wants to become a leader in sellthrough, but in the meantime, this model will help keep its rental business afloat. Industrywide, rentals are down, and I believe Blockbuster has seen the proverbial writing on the wall and will be focusing more and more on selling videos than on renting them.

In the meantime, this is one more way for the chain to differentiate itself from other rental stores that don't have the luxury of letting their customers keep the latest red-hot hit out as long as they like.

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